Managing capital flows in the 21st century

• Published date: 01 December 2019
• Author: Luca Fornaro
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/infi.12362

International Finance. 2019;22:439–446. wileyonlinelibrary.com/journal/infi

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439

DOI: 10.1111/infi.12362

BOOK REVIEW

Managing capital flows in the 21st century

Luca Fornaro

CREI, Universitat Pompeu Fabra and Barcelona GSE

TAMING THE TIDE OF CAPITAL FLOWS: A POLICY GUIDE

Ghosh Atish R., Jonathan D. Ostry, and Mahvash S. Qureshi

Cambridge: MIT Press, 2018, 488 pp., 9780262037167

DANCE OF THE TRILLIONS: DEVELOPING COUNTRIES AND GLOBAL FINANCE

Lubin, David

Washington DC: Brookings Institution Press, 2018, 154 pp., 9780815736745

CRASHED: HOW A DECADE OF FINANCIAL CRISES CHANGED THE WORLD

Tooze Adam

London: Penguin, 2018, 720 pp., 9780670024933

The last 50 years have seen a sustained process of financial globalization, with countries

around the world opening their capital accounts and joining international financial markets.

Underpinning this process has been the idea that higher financial integration would deliver

welfare gains, in the form of a better international allocation of capital and higher risk‐sharing

across countries. With the passing of time, however, it is clear that international capital flows

have displayed important negative side effects. Most notably, volatile capital flows have been

associated with turmoil in financial markets and sharp boom‐bust cycles in credit and output. It

is, then, not surprising that, both in academic and policy circles, an initially benign view

towards openness to international capital flows has given way to a more skeptical approach.

Should capital flows be regulated? Does international financial integration call for international

cooperation in policy design? These questions are now at the forefront of the current debate on

the international monetary system. In what follows, I review three recent books that nicely

complement each other in giving a bird’s‐eye view of the facts and debate on capital flows. One

of the central themes of Crashed, by Adam Tooze, is the connection between capital flows and

the 2008 global financial crisis. Dance of the Trillions, by David Lubin, provides an historical

overview of the integration of developing countries into the international financial markets,

from the 1970s to the present. In Taming the Tide of Capital Flows, Atish Ghosh, Jonathan Ostry

and Mahvash Qureshi consider the policy options available to governments in developing

countries seeking to mitigate the negative effects of capital flows. Besides reviewing these

books, I will throughout provide suggestions for further reading by referencing the recent

academic literature on capital flows.

© 2019 John Wiley & Sons Ltd